Prime Minister Fumio Kishida and Bank of Japan Governor Kazuo Ueda met Tuesday to discuss financial conditions amid continued yen weakness and a rise in bond yields ahead of a key gathering of central bankers in Jackson Hole later this week.
(Bloomberg) — Prime Minister Fumio Kishida and Bank of Japan Governor Kazuo Ueda met Tuesday to discuss financial conditions amid continued yen weakness and a rise in bond yields ahead of a key gathering of central bankers in Jackson Hole later this week.
“Prime Minister Kishida asked various questions about the economic and financial situation,” Ueda told reporters after the meeting. The two didn’t particularly discuss currency moves, the governor added.
The meeting comes with the yen near 146 to the dollar and after the yield on Japan’s 10-year government debt hit 0.66% for the first time since 2014. The nine-year high in the yield raises the prospect that the central bank may step into the market with an unscheduled bond-buying operation to slow gains.
Federal Reserve Chair Jerome Powell will deliver a keynote address at Jackson Hole on Friday. Powell’s comments on the policy outlook will be closely watched by market players and could impact the yen and yields if they diverge from previous messaging. The Jackson Hole meeting hosted by the Kansas City branch of the Fed in August each year is seen as a key opportunity for flagging US policy direction outside regular rate-decision meetings.
Read More: Japan’s Benchmark Bond Yield Hits Nine-Year High in Test for BOJ
“They are mindful of the Jackson Hole meeting,” said Takahiro Sekido, chief Japan strategist at MUFG Bank Ltd. in Tokyo and a former BOJ official. “The yen has weakened so much and it’s possible it will fall even more. They are sending a warning signal to markets.”
The yen has been moving around the level that prompted Japan to step into the market last year for the first yen-buying action in 24 years. Finance Minister Shunichi Suzuki said last week that authorities will take action if there are excessive movements in foreign exchange rates.
The yen nudged higher immediately after news of Tuesday’s meeting was first reported before paring gains.
The BOJ acknowledged that currency volatility was a factor in its July decision to loosen its movement range for yields on benchmark government bonds. With that move, analysts say it’s probably now the finance ministry’s turn to address the yen’s descent if it’s deemed necessary.
“I explained last month’s policy decision, and he said that he fully understood it,” Ueda said, referring to his conversation with the premier.
As for bonds, investors are trying to gauge the central bank’s tolerance for rising yields after it waded into the market twice since adjusting policy on July 28. That tweak enables the rate on 10-year debt to rise as high as 1%, but not with rapid moves.
That tweak seems to have been smooth enough to avoid any impact on Japan’s credit rating, according to S&P Global Ratings.
Ueda and Kishida met back in early April shortly after the governor took the helm of the BOJ. At that time they agreed there was no need to revise the central bank’s joint agreement with the government for the time being.
–With assistance from Gareth Allan, Toru Fujioka and Yuko Takeo.
(Adds comments from economist)
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